IRS tax liens on homes

Wednesday, Dec. 17
Posted 11 a.m. EDT

IRS enhances homeowner tax lien help

In the best of times, homeowners face many obstacles in getting a mortgage or completing a property sale. When owners also face a tax lien on their properties, the end result is often loss of the homes.

The IRS says is it wants to help stop that from happening.

IRS Commissioner Douglas Shulman announced Tuesday that his agency is expediting the process it uses to deal with residential tax liens. Doing so, says Shulman, should allow some homeowners stay in their properties.

For more than 40 years, homeowners in tax trouble have been able to request that a federal tax lien be made secondary to a loan provided by a lending institution. Such lien subordination generally makes lenders more willing to provide a loan, since their loans secured by the property then will have priority.

With more homeowners facing tax liens in today's tough economy, the IRS is speeding up that subordination process. "Where we can subordinate our lien may mean they can stay in their home," says Shulman.

The IRS also can discharge, or remove, a tax lien. This action could help homeowners who are relinquishing a property, such as selling the home for an amount that is less than the existing mortgage.

"Clearly, these are difficult times for the U.S. economy," said Shulman in announcing the expedited IRS lien policy. "Many homeowners are at risk of losing their homes. The IRS is doing whatever it can under the constraints of law to avoid getting in the way of people trying to refinance or sell their homes."

Asking for IRS lien attention: If you're seeking a certificate of lien subordination, follow the directions in Publication 784, "How to Prepare an Application for a Certificate of Subordination of a Federal Tax Lien."

If you or your lender want a certificate of discharge of a tax lien, follow the instructions in Publication 783, "Instructions on How to Apply for a Certificate of Discharge of a Federal Tax Lien."

In both instances, there is no official form to submit, but you must provide a typed letter of request and certain documentation. Then mail your request to one of the 40 Collection Advisory Groups nationwide. Publication 4235 has that address information.

The IRS also urges people to contact its Collection Advisory Group early in the home sale or refinancing process. And be sure to let your lender know up front of tax liens. Your banker will find out eventually and by putting off the inevitable, you'll just delay possible relief.

The process to request a discharge or a subordination of a tax lien typically takes around 30 days after the agency receives an application. Now, the IRS will work to speed up those requests.

"We want to process these so that it won't delay a closing or sale," says Fred Schindler, director of IRS Collection Policy. "If time is short, the goal is to get through the process as quickly as possible. We are increasing our staffing, working as quickly as possible, but it is hard to give you a firm time table. We will do our best."

Uncle Sam still wants his money: While the IRS is working with homeowners and lenders to help people resolve their lien-affected financing issues, it isn't giving up its main job, which is collecting taxes.

"We are mindful of the challenges we face," says Shulman. "We must balance our responsibility to enforce the law and the economic realities facing many citizens today."

The IRS's enforcement duties mean you shouldn't be confused by the term "discharge." A lien discharge is not a free pass to ignore unpaid taxes. The agency is simply releasing its claim on the taxpayer's home, not absolving the taxpayer of ultimate responsibility to pay due tax.

Rather, in these instances, the IRS simply releases its claim on the affected home. The taxpayer, however, still is responsible for that due tax.

"Notice of lien is filed when we are unable to secure voluntary payment up front," says Schindler. "We want to secure the property so others don't get ahead of us. But if a taxpayer pays it off during the initial notice phase or makes arrangements to pay, the lien can be removed. The notice is filed typically when a taxpayer hasn't come to the table to work something out in the initial collection process."

So removal of a tax lien from a residence doesn't prevent the IRS from placing another one against other property. The IRS can shift its legal claim to the taxpayers' other assets, such as other real estate, a car, even wages and other income.

How many are affected? Will this expedited tax lien process remove the majority of distressed homeowners from the brink of losing their properties? Probably not. But the IRS wants to make sure that it doesn't add to the tally.

"We are committing whatever resources are needed to speed this process up as much as possible so we won't be the party delaying or preventing a closing," says Shulman.

And while the commissioner acknowledged that he's "not in position to predict how many people this might help," Shulman noted that there currently are more than a million federal tax liens outstanding tied to both real and personal property.

Dan Green, loan officer with Mobium Mortgage in Cincinnati and author of, says he hasn't run into tax lien problems lately but realizes "It's a big deal to people waiting on the IRS to return a phone call."

And in the mortgage loan business, where shorter rate locks make for better mortgage rates, Green says "anything the IRS does to hasten its subordination process is a plus for homeowners."


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